On the heels of Sen. Josh Hawley’s call in an op-ed to abolish the World Trade Organization, U.S. Trade Representative Robert Lighthizer also took to the opinion pages of The New York Times to declare the end of “the era of offshoring.”President Donald Trump’s aggressively unilateral trade policies, naturally, got most of the credit. As with Hawley’s fuzzy plan for a club of “free nations” aligned against China, it’s not quite clear whether Lighthizer thinks protectionism should still be part of the plan to “Bring the jobs back to America.” But with the United States potentially on the brink of another Great Depression, battered by the coronavirus pandemic, two prominent officials within a week calling for protectionist-sounding policies is unsettling, to say the least.
Lighthizer argued in his op-ed, published just a week after Hawley’s, that American companies were already rethinking their “craze” for offshoring, in his words, thanks to the Trump administration’s strict enforcement of trade deals, renegotiation of allegedly bad ones and confrontation with China. Lighthizer insisted the pandemic is accelerating that trend and, along with the administration’s trade policy, will deliver on Trump’s promise to bring back manufacturing jobs.
But the numbers don’t support Lighthizer’s claims. In fact, Trump’s “America First” protectionism is more likely to be hurting than helping the manufacturing sector. Lighthizer offers a few examples of companies he says have “either scrapped offshoring plans or announced decisions to move production to the United States.” And growth in manufacturing output and jobs did accelerate a bit in Trump’s first two years, compared to the final years of the Obama administration. But that growth was short-lived, as manufacturing started weakening more than a year before the pandemic-related shutdowns hammered the economy this spring.
Beginning in early 2019, manufacturing output declined slightly and then stalled out, as did manufacturing jobs. The Institute for Supply Management’s manufacturing index slipped below 50 last summer, signaling a contraction well before the pandemic hit.
The downturn did, however, coincide with escalation in Trump’s trade war with China. Average U.S. tariffs on Chinese exports went from around 3 percent at the beginning of Trump’s term to 12 percent in September 2018 and 21 percent a year after that. Recall that most of these new tariffs were on intermediate goods, raising costs for American manufacturers using them in production. Moreover, those added costs were on top of the 25 percent tariffs that the Trump administration imposed on steel and aluminum imports from most of the world in the spring of 2018, purportedly for national security reasons.
Since overall economic and employment growth continued in 2019, it is more than plausible that those tariffs played an important role in the manufacturing sector’s troubles. Responding in his op-ed to companies complaining that Trump’s trade policies were creating uncertainty and hurting them, Lighthizer was blunt: “If you want certainty, bring your plants back to America.” But unless he expects supply chain trade to simply cease, the possibility of new U.S. import tariffs—and the likelihood of retaliation—are business costs that no firm can afford to ignore. To reiterate the lesson that Trump has yet to learn, tariffs are a tax on Americans.
Fixing the economic damage wrought by the coronavirus will be a huge job, and an inward-looking, nationalist trade policy could make things worse—just as it did in the 1930s.
There is no question that foreign investors are rethinking their supply chains in the light of misgivings about Chinese policies, Trump’s tariffs and the fragility exposed by the pandemic. But the evidence so far is that, to the degree diversification is occurring, investors are mostly looking elsewhere in Asia. Vietnam was already drawing attention from investors in labor-intensive sectors, such as clothing, that have been negatively affected by rising wages in China. India is offering land to potential investors shopping for alternatives to China because of the pandemic.
But even if some U.S.-based companies do bring some production back to the U.S., there is little evidence it would create large numbers of new manufacturing jobs. After all, automation is already occurring in a number of sectors, and attempts to force companies to relocate to the U.S. are more likely to accelerate the use of robots than to create lots of new jobs. Moreover, that pressure would be on top of pressures to add robots to assembly lines where the coronavirus necessitates social distancing.
Where the Trump administration plans to take trade and industrial policy from here is unclear. In January, the “phase-one” deal with China seemed to signal a desire to tamp down the trade war and mollify farmers and other American exporters by forcing China to buy lots of soybeans, corn, liquified natural gas and other stuff. But those purchases are now at risk because of the pandemic’s economic impact. Moreover, China appears to be a convenient political target for both Trump’s reelection campaign and the campaign of the likely Democratic nominee, former Vice President Joe Biden.
Fixing the devastating economic damage wrought by the coronavirus is going to be a huge job, and it comes on top of long-standing needs for policies to make the U.S. economy fairer and more internationally competitive. Trade policy does not have a major role in either of those tasks, and an inward-looking, nationalist trade policy could easily make things worse—just as it did in the 1930s. The alternatives are easy to identify, if difficult and expensive to implement: building and repairing crumbling infrastructure; investing in research and development; making funding for primary and secondary education fairer and college more affordable; making health insurance universally available; and untying health care and pensions from jobs so they move with the worker.
Trump has supported infrastructure rhetorically—he imagines himself a builder after all—but he has not lifted a finger to make it happen during his presidency. Other sins of omission—such as failing to work with Congress to increase support for research and development—and of commission—his increasingly backward and cruel approach to immigration—are further drags on the economy. Republican leaders in Congress don’t really like Trump’s tariffs, but they haven’t been willing to confront him over it. They also haven’t been able to agree with Democrats on alternative policies, in part because they refuse to consider raising taxes to pay for them.
Imposing tariffs doesn’t require a congressional appropriation, and it doesn’t require compromise with Democrats in an election year. Blaming foreigners and avoiding new taxes—unless, of course, they’re on imports—is a lot easier than doing the hard work required to restore American competitiveness. What’s worse, there is little sign the Trump administration is willing to change that approach even in the face of the biggest economic collapse since the Great Depression.
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